According to a recent report published by IHS Markit, 80 million smart home devices were shipped worldwide in 2016, a 64 percent increase over the prior year. The Americas saw the bulk of those orders last year, as about 70 million connected home devices were shipped to the market. The region is expected to see nearly 90 million devices shipped this year alone.
Of course, one of the bedrocks of the smart home market since its inception has been security. Study after study has consistently found that one of the primary motivating factors for consumers in buying connected home technology has been to keep their families safe. The advent of the smart home has been a boon for the alarm industry – as dealers, manufacturers and monitoring providers have been at the leading edge of helping to fulfill the promise of the technology.
However, while the smart home has helped to reinvigorate the alarm market, it has also brought with it some notable challenges, including new competition from do-it-yourself (DIY) systems and the re-entry of large cable and telecommunications companies into the industry. In many ways, connected home technology has even altered the traditional recurring monthly revenue model of the industry, forcing dealers to rethink how they view equipment installation and monitoring contracts.
How might the industry be further influenced by technology changes and other trends moving forward? SecurityInfoWatch.com recently sat down with experts to get their take on what the industry can expect in 2017 and beyond.
Meet the Panel:
- Angela White, president, Electronic Security Association (ESA)
- Blake Kozak, principal analyst, IHS Markit
- Robert Beliles, senior vice president, product management and marketing, Nortek Security & Control
- Inder Reddy, general manager, intrusion and residential solutions, Honeywell Security and Fire
We’ve seen the Internet of Things and the proliferation of smart home gadgets revolutionize the alarm industry in a relatively short amount of time, but are there any other trends on the horizon that could have a profound impact on the market in 2017?
White: Ninety percent of the data in the world has been created in the last two years. The amount of information that needs to be managed in today’s world is staggering. This is already impacting our industry and our business operations. Companies need to have a plan to manage data efficiently and securely.
Kozak: Several trends will have an impact on the market in 2017, including variations of DIY models, builders and real estate firms offering installation of security and automation devices, on-demand services (i.e. on-demand and hybrid monitoring) and voice control. A growing marketing trend in the smart home market has been to target builders and developers. A smart home system could be installed in dozens of homes before potential buyers are even part of the picture – so rather than marketing devices solely to consumers and partnering with security service providers and multi-system operators (MSOs), builders can be a partner rather than a customer.
Voice control is expected to be the greatest disruptor to the smart home market. What it brings is simplicity of controlling a smart home ecosystem. Instead of trying to open apps for each device or find an aggregator app to turn on or off the lights or open the blinds, voice is used to create scenes and issue commands.
Beliles: For consumers, ease of use and security (of the system) remains one of the top driving factors for the adoption of smart home technology. We predict that ease of use will continue to be a key motivator for home automation, and we will see increased efforts around encryption and authentication of physical security and home automation systems in the market in 2017. Given the adoption rate of in-home security cameras, we expect video and audio analytics will become a trend with profound impact on the market in 2017 and beyond. We expect more hype around voice-controlled devices, such as those offered by Amazon, Google, as well as others.
Reddy: Mobility is likely to have (and already having) an impact on the industry in 2017. Consumers are likely to use their smartphones as the primary device for interacting with their security system vs. a typical keypad. This puts a premium on the mobile experience and also changes the design and install constructs of the security system. User experience is another key theme that is having and will continue to have a profound impact on the security industry.
Along with the rise of connected home technology, there has also been increased interest in do-it-yourself security solutions on the part of consumers. How much impact do you expect DIY will have on the market moving forward? How can our industry counter it or leverage it, or is it not a great concern to our part of the industry?
White: I expect that DIY will increase the overall electronic security industry market. There is a large segment of the market that has not integrated security or smart home technologies into their lives for various reasons. Some of these reasons include generational preferences like not being locked into a long-term contract, consumers that do not own a home and therefore are not willing to invest in a traditional system, or those that don’t feel as though they need a security system. In my opinion, it is not a matter of countering DIY products or solutions. In fact, I view this as a positive addition to the overall industry. This sector is aiding in boosting overall consumer awareness and demand. The giant entrants into this space are doing a wonderful job of building awareness through the millions of dollars they are investing in advertising. Some ESA members are also capitalizing on this opportunity and adding DIY solutions to their overall offering.
Kozak: Forty-one percent of connected home device shipments in 2016 were DIY; however, by 2020, we project that only 24 percent will be DIY. The reason for the decline is lack a lack of standards and end-user education. Despite efforts by the Open Connectivity Foundation (OCF), Thread Group and others, device vendors and platform providers want to control the relationship with the end-user and use the associated data for various business purposes. As a result, the DIY market has remained highly fragmented and confusing for consumers. Furthermore, the cost per device has inhibited the smart home market to early adopters and those that have dabbled in smart home technology have been starting slow, with only a few devices in the home. That means a professional or hybrid approach is necessary for the connected home to reach critical mass. We expect that the customer service and reliability of professional systems will continue to draw consumers away from DIY.
Although monthly subscription costs will remain a barrier, we believe a hybrid approach – DIY installation with professional monitoring or professional installation with self-monitoring – will be critical. Overall, the majority of consumers aren’t yet ready to go it alone with the smart home and need some element of professional assistance in order to fully realize the value of smart home.
Beliles: We don’t view the DIY movement as a threat to the security industry or installers. As interest in DIY solutions grows, so too does consumers’ interest and the value they place in security solutions to protect their families. For some consumers, a self-installed system is sufficient, whereas others will want increased monitoring, control, and connectivity. Those who are looking for more from their system present larger opportunities for security dealers to provide complex systems that can grow. By working with DIY customers, security dealers can present themselves as technology experts to add a new customer base that they hadn’t previously targeted.
Reddy: DIY has been a trend for some time and is something that has helped our industry in a couple of ways. First, DIY has brought greater focus and attention to security systems’ install, maintain and use features. This has motivated manufacturers and dealers to drive better user experience. Second, it brought increased awareness of security and lifestyle solutions, which we feel will help expand the market.
Congress recently held a hearing about what the government may need to do to better protect IoT devices against cyber threats. With an ever increasing number of alarm systems and sensors being connected to the internet, what does the industry need to do to make sure these devices are protected against hackers before regulators get involved?
White: There is no doubt that cyber threats are real and increasing. As an industry, we must improve our employee training and increase consumer education to ensure network protocol best practices are followed. Practices as simple as changing the manufacturer default login information can go a long way in preventing hackers from compromising the integrity of the system and devices on a network. In addition, manufacturers need to keep cybersecurity as a top priority to ensure their products are not easily hacked.
Kozak: The industry needs to follow best practices and work to ensure that all aspects of the ecosystem are vetted. The challenge with securing devices against hackers is that the process would slow integrations and the expansion of connected devices. Apple has been criticized for being too slow to market and not expanding its Home ecosystem quickly enough, but Apple requires certified chips and HomeKit firmware for its smart home offering. Furthermore, the Z-Wave Alliance introduced the S2 Framework to help address vulnerabilities. Overall, the industry needs to continue to educate consumers about the importance of changing default passwords but ultimately, the liability is with the product manufacturers to require password changes prior to device setup and ensure the passwords that are embedded directly in the firmware meet industry standards.
Beliles: On the consumer side, one powerful tactic is education. Homeowners can quickly and easily increase the security of their home routers by changing the default username and password, changing the default SSID (service set identifier) and changing their password every 90 days or so. They can use WPA or WPA2 security options with AES encryption offered by most Wi-Fi routers (802.11b/g/n). Moving forward, we see a greater need for encryption and authentication within the industry. That growing need is going to require two-way communication capabilities at the device level, and we believe service providers will begin to insist on higher levels of security from their vendors, and solutions that rely on older technologies like one-way communication will start to fall by the wayside.
Reddy: We take security issues very seriously, and we recognize that the security of our products is a top concern for our customers. We are constantly tracking cybersecurity software standards and best practices to ensure our products integrate securely into our customer's environments. Home and business owners also play a critical role in cybersecurity by adopting strong network security protocols with appropriate security configurations and by diligently adhering to best practices, such as using strong passwords.
The success of the alarm industry is now largely intertwined with that of smart home technology, but does this market evolution present any potential threats to the traditional alarm dealer?
White: The vast integration of smart home technology and security solutions is providing consumers with enhanced lifestyle benefits and convenience. This market evolution bolsters the offering for traditional alarm dealers and allows security companies to capitalize on the increased consumer demand surrounding smart home technology.
Kozak: The evolution of the alarm industry will only threaten the alarm dealers that refuse to offer remote management and automation. For the dealers that embrace smart home, there will be more opportunities to upsell existing customers, which had been sorely lacking prior to smart home. The challenge will be revamping customer service practices and training installers on the new technology.
Beliles: While security is still one of the top adoption factors for smart home technology, consumers are looking for ways to make their lives easier. The peace of mmind home security provides will continue to motivate consumers, but the alarm industry needs to evolve its ability to enable additional features through the base security system. Recognizing that, consumers will only adopt home automation solutions that are reliable and easy to use.
Reddy: We believe smart home technology is a key enabler of security systems as safety and security continue to be the foundational elements of all smart homes. The alarm dealer is extremely well positioned to be the trusted service provider for smart home solutions by learning new technologies and helping consumers navigate the variety of choices available to them.
What impact have hybrid, as-needed and MIY monitoring had on the alarm industry, and how can alarm dealers and monitoring providers leverage these trends?
White: The impact has been minimal so far. We have seen growth in professional monitored systems over the last few years and expect to see the growth continue. Although monitor-it-yourself (MIY) and on-demand monitoring are great topics of discussion, we have not seen them take root in the professional security space. As they gain popularity and alarm dealers work out the logistics with their central stations, they could use these options in retention efforts.
Kozak: The impact of hybrid, as-needed and MIY monitoring has mostly been reduced margins and RMR for dealers; however, these approaches permit dealers to obtain more customers with less time spent with each customer. Announcements from major security providers, such as ADT Canopy at CES 2016, prove the traditional security market must evolve and adapt to changing end-user needs in order to increase penetration. The traditional contracts of $30 to $60 a month for two or three years will remain a viable option for many consumers, but the ceiling for this model is low and the preputial churn amongst providers will persist. Moreover, a benefit of the flexible model is the opportunity to convert these customers to long term contracts.
Beliles: The increase in hybrid and MIY monitoring is evidence that end-users are looking for solutions that fit their specific needs. While these customers may not be paying for alarm monitoring year-round, their presence is a positive for the industry because it creates a clear path to conversion for full-time monitoring in those consumer’s futures. Part-time monitoring represents the first step in entering the security market for many customers, who become an opportunity for dealers and monitoring providers to provide more comprehensive systems down the road.
Reddy: We haven’t observed enough data points to comment on a meaningful trend, but early feedback suggests that some of our dealer customers are exploring pay-as-you-go models for alarm monitoring. The economics appear to be challenging as dealers look to achieve payback on their creation costs but as with any new trend, more field time is needed to get properly opinionated around the idea.
